Are entrepreneurs more upwardly mobile?

Abstract

Entrepreneurship is often hailed as a path to upward intergenerational mobility, but few studies have explicitly tested this belief. Drawing on insights from the literature on entrepreneurial heterogeneity and returns, we compare the extent and direction of mobility across generations among Swedish entrepreneurs and employees. We study intergenerational income rank mobility using high-quality lifetime income measures for 215,000 father-son pairs. Entrepreneurs are drawn disproportionately from both poorer and richer families, but the patterns we uncover hold across the entire paternal income distribution. Sons who own incorporated businesses are more upwardly mobile across generations than employees; sons who own unincorporated businesses are more downwardly mobile. Selection on (un)observable traits fully explains incorporated sons’ moves up, but only a small share of unincorporated sons’ moves down. Income underreporting and, crucially, lower returns to human capital explain the remaining downward mobility. Unincorporated ventures appear to use entrepreneurs’ human capital inefficiently.